SAIC vote could end control by employees

Preferred shares would be converted into common stock

For four decades, defense contractor SAIC clung to a creed of employee ownership — at one time rising to the second-largest company in the country owned by its workers.

It was a share-the-wealth philosophy fostered by SAIC founder J. Robert Beyster, a nuclear physicist who believed that if he gave every employee a stake in the company's success, it had a better chance of flourishing.

And flourish it did, growing from a boutique research firm with $250,000 in sales its first year to a $10 billion conglomerate.

But times have changed, and so has SAIC.

The San Diego company's board has asked shareholders to approve the conversion of preferred shares — which have greater voting rights and are owned only by employees and retirees — into common shares, which are held by outside investors and traded on the New York Stock Exchange.

The move would essentially end the last vestige of employee control over the science-and-engineering company, making it similar to most of the other Fortune 500 companies.

The vote will be announced today at the company's annual meeting in McLean, Va.

Ultimately, the SAIC board appears to have concluded that the company grew too big and faced too much regulation to maintain a decentralized, employee-owned structure.

Moreover, since the company went public three years ago, SAIC needed to bend to the will of Wall Street. Institutional investors can be wary of companies that dilute their voting rights.

“Unless management is very committed, it is difficult once you are a public company to maintain the sort of culture they had before,” said Corey Rosen, executive director of the National Center for Employee Ownership. “There is just a tremendous amount of pressure from public markets to do the things that other public companies do.”

The largest employee-owned company in the country, the Publix supermarket chain in the Southeast, still sees significant value in giving its 97,000 employees an ownership stake.

“We're in the service industry,” said Maria Brous, director of communications for Publix. “We (employees) have skin in the game. The way we perform affects us. We want to perform well so the value of our stock and our retirement continues to increase.”

In many ways, SAIC's journey to today's shareholder vote started in 2004 when Beyster left the company. The new chief executive, Ken Dahlberg, began reshaping the sprawling, decentralized structure favored by Beyster into a more traditional organization — in part to comply with tough new accounting regulations.

SAIC used to operate more than 40 semiautonomous business units under its umbrella, some of which sometimes competed with each other for the same government contracts. Now the company has been slimmed down to about a half-dozen divisions.

In 2006, the company sold stock to the public for the first time. Before that, the company's shares traded internally among SAIC's more than 40,000 employees and retirees.

SAIC went to elaborate lengths to create an internal stock-trading system. It had an internal brokerage to match employee trades every three months. The board set the price, using a formula that included comparisons with publicly traded companies.